“Year End Financial Considerations”

  It’s crazy to think we are just over 2 months from the end of 2022 but that is reality.  Amidst the upcoming holiday period it can be easy to let other areas of your life take a back seat.  While 2022 has been a difficult year in the markets, there are some beneficial items to consider as we close out the year and focus on 2023.   Max Out Retirement and Check for Excess Contributions The idea of being able to make maximum contributions to an IRA or 401K plan might seem out of reach for some people, but knowing the maximums can also make for a good long term goal.  For 2022, those aged under 50 can contribute up to $6,000 to an IRA account (Traditional or Roth combined) and $20,500 to a company provided retirement plan (401K, 403B, etc.).  Technically, contributions to an IRA can be made up until April 15th of the following year for the previous year, while contributions for a company plan should be done by December 31st.  For those 50 years old and above the IRA contribution limit is up to $7,000 (an additional $1,000 compared for others), and $27,000 for workplace plans (an additional $6,500 compared to others).  Keep in mind that for these retirement plan contributions you are required to have “earned income” in the calendar year so contributions for retirees are not allowed.   Check for Significant Gains or Losses to Offset The end of the year can also be a good time to see whether you have any significant gains or losses in non-retirement accounts that can be optimized.  For example, if someone owns Apple stock in their portfolio and has $10,000 of gains from the time they purchased the stock, they should take the opportunity to look across all of their other investments and potentially find other holdings that have losses to offset the $10,000 gain.  By taking the chance to offset long term capital gains with long term losses, you can avoid paying more taxes when you sell in the future.  It’s important to keep in mind that the gains and losses should be matched as either short term (less than 1 year of holding) or long term (1 year or more) before making the decision.   With 2022 being a year where many people will likely have losses within their accounts, tax loss harvesting can be a very valuable exercise. Just keep in mind that if you plan to re-purchase a security that you have sold at a loss for tax purposes, keep in mind that you need to wait 30 days to re-purchase to avoid the “wash sale” rule.   Consider Roth IRA Conversions While this is typically a good idea to consider for any year, 2022 could be a specifically good year to consider a Roth IRA conversion.  With many account holdings being lower than they were when the year began, you would actually be converting more shares into a Roth account compared to if you converted the exact same dollar amount in 2021.  For this reason, converting assets and re-positioning them into a Roth account that will have zero tax consequences going forward could be a good idea.   Make a Solid Game Plan for 2023 Perhaps the most important thing you can do at the end of 2022 doesn’t have anything to do with your current investments or financial profile.  Maybe you have put off some important financial decisions in 2022, on things like life insurance, wills, and automatic investing have always been in your to-do list but they don’t get done.  One of the best things you can do as you enter into 2023 is to sit down (with your spouse included if you are married) and make a solid game plan for the upcoming year.  Taking the time to pause and talk about your financial goals and dreams, and then making a written game plan to achieve them is a powerful step.
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